By Nick Barisheff

Special to the Financial Independence Hub

In December 1997, The Financial Times ran an article entitled “The Death of Gold.” Since then, the gold price in US dollars has increased 519% from $288 to $1,780. Today, after many political events and crises we have evidence of the continuous and in many ways spectacular growth of the gold price. This confluence of many current events is creating a perfect storm for gold to increase dramatically more than we imagined.

Currency Devaluation

Typically, currency devaluation is always at the heart of a rising gold price. This has been taking place in all of the major fiat currencies, resulting in an average annual price increase in gold of over 10% since 2000.

“For the naïve there is something miraculous in the issuance of fiat money. A magic word spoken by the government creates out of nothing a thing which can be exchanged against any merchandise a man would like to get. How pale is the art of sorcerers, witches, and conjurors when compared with that of the government’s Treasury Department.” — Ludwig von Mises

Since 1900, all major fiat currencies have been devalued by over 90%.

To understand currency devaluation, it is necessary to understand that all currency is created by governments issuing debt and then the central bank monetizing that debt by printing the currency. In 1960, the U.S. federal debt to GDP stood at 52.2%, whereas today it has grown to 125.9%. The Federal Reserve has increased its balance sheet by a historically unprecedented amount of over $7.5 trillion since 2008.

Because of this central bank policy, all western currencies are being devalued and this in turn leads to inflation.

— Nicholas Copernicus – 1525

 “Fed Chairman Powell has pumped trillions of newly printed dollars into the system in order to prop up the financial markets, but in the process has unleashed a tsunami of inflation that is unlike anything we have seen since the 1970s.” — Michael Snyder

“For the first time in history, ALL the major central banks are printing money. One of two things will occur. If they continue to print, their respective currencies will lose their purchasing power, and we’ll have inflation or even hyper-inflation.”

As Currencies are Devalued, Price Inflation will inevitably follow

Inflation, as this term was always used everywhere and especially in North America, means increasing the quantity of money and bank notes in circulation and the quantity of bank deposits subject to check. But people today use the term ‘inflation’ to refer to the phenomenon that is an inevitable consequence of inflation, and that is the tendency of all prices and wages to rise.

In October 2021, consumer inflation jumped to a four-decade high, the highest since the days of runaway inflation in the early 1980s. Headline year-to-year GDP inflation hit a 38-year-plus high of 4.53%.

According to John Williams of Shadowstats.com, if inflation was calculated using 1980s methodology, the CPI would be nearly 15%. Since treasury yields are about 2%, the true inflation-adjusted treasury yield would be about -13%.

Gold Rises Fastest When Real Yields Go Negative

Inflation is destined to go even higher in 2022. Many of the biggest corporations have already announced price increases that will take effect in 2022.

Declining GDP — Stagflation

“The…economy is facing a period of stagflation in which both growth and inflation disappoint.” — David Walton, Goldman Sachs

Stagflation is worse than a recession. It’s because stagflation combines the bad economic effects of a recession (stock declines, unemployment increases, housing market dips) with inflated prices. When this is dragged out over the long term, it becomes a problem that can have a big impact on societal habits.

To make matters worse, we are already experiencing declining GDP together with increasing inflation. This is due to an unusual combination of supply chain disruptions and labour shortages due to COVID-19 policies that have been implemented in most western countries.

Supply Chain Disruptions

The COVID-19 pandemic impact and the disruptive government responses continue to have enormous negative impact on global supply chains. Beyond COVID-19, compounding profound governance incompetence, media bias, political conflicts, disintegration of society split by “Covid politics,” natural disasters, cybersecurity breaches, international trade disputes have negatively impacted supply chains leading to product shortages, distribution delays, and manufacturing disruptions. The lockdowns imposed in many countries have led to revenue declines and many bankruptcies, with many more to come. Making matters even worse is the implementation of vaccine mandates, causing over 4 million people to leave the workforce in the U.S. This will lead to other societal problems due to lack of first responders, nurses, firefighters, and police.

Some analysts expect that it will take years for the capacity constraints and backlogs to ease. Continue Reading…